Insurers Seek Study of North Carolina Beach Plan’s Finances

Insurers are calling upon the the North Carolina Insurance Underwriting Association, known as the Beach Plan, to release its financial information to allow consumers, lawmakers and insurers to begin working on long-term solutions for the state’s homeowners’ insurance system.

At a board of directors meeting on Aug. 18, the Beach Plan voted to release financial information to the insurance company trade group Property Casualty Insurers Association of America (PCI) for an actuarial study of the state’s property insurance market conditions.

“We are all in this together,” said Robert Herlong, regional manager for PCI. “We are seeking a long-term, balanced approach that benefits all North Carolina homeowners.”

PCI is commissioning an actuarial analysis of the financial capacity of the Beach Plan and the ability of the state’s property insurance market to weather a severe storm.

The insurers specifically requested the Beach Plan’s probable maximum loss, a study of rate adequacy and the names and professions of its board members. Herlong said the board voted to release its PML and rate adequacy, but chose to withhold board members’ identities. However, the board members’ names and professional affiliations are accessible through the state insurance department as a matter of public record.

PCI says the Beach Plan is growing at a rate of $877 million worth of coastal exposure per month.

“The current trend is evidence that the Beach Plan has turned into the market of first resort for many coastal property owners,” Herlong said.

Underfunded

PCI is concerned that the plan is underfunded for its coastal exposure. PCI estimates that the fund has “no more than $1.5 billion available to pay for hurricane losses.” According to insurers, this is not nearly enough to cover the $67.8 billion of hurricane-vulnerable coastal property insured by the plan, Herlong said.

“If a major storm hits and the Beach Plan does not have the ability to pay its claims, all homeowners across the state suffer,” said Herlong.

Private insurers have reason to be concerned. If the plan does not have sufficient reserves, they will be forced to pay for the difference in the form of assessments.

“This also leads to consumers in all areas of the state experiencing higher rates and less insurance options,” said Herlong.

Farmers Insurance Group recently decided to pull out of the North Carolina homeowners market, citing potential for bank-breaking assessments from the state’s property insurance plans. (See story on page 68.) Farmers represents 1 percent of the state’s homeowners’ market share, according to NCDOI.

The Beach Plan provides property insurance coverage for coastal homeowners who can’t find it in the private market. It was intended to be a market of last resort.

Kristin Milam, a NCDOI spokesperson, said the plan is not a state-backed entity, and that it must file rate requests through the DOI and is regulated like any other insurer in the state.

PCI said it hopes to work with the legislative study committee on coastal property insurance this fall to come up with policy recommendations for 2009.

“The Legislature recognizes that consumers, the business community, public policymakers and insurers need to come together and work to prevent a serious problem that could spell financial disaster for the state,” Herlong said. “We urge the Beach Plan to help us seek solutions to protect the state of North Carolina. But taking a realistic look at the capacity of the Beach Plan is the first step. This is a unique opportunity for North Carolina to better plan for the future before a storm, rather than after the fact, and prevent the kind of devastation that was experienced by other coastal states which were not prepared.”

Topics Carriers North Carolina Property Homeowners